The “Marginal Standing Facility” is a window for banks to borrow funds

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The “Marginal Standing Facility” is a window for banks to borrow funds from the Reserve Bank of India at

the repo rate
a rate lower than the repo rate
a rate higher than the repo rate
zero interest rate
This question was previously asked in
UPSC Combined Section Officer – 2021-22
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The correct answer is C. The Marginal Standing Facility (MSF) rate is higher than the repo rate.
The Marginal Standing Facility (MSF) is a facility under which scheduled commercial banks can borrow additional funds overnight from the Reserve Bank of India (RBI) by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit. It was introduced as a safety valve against unanticipated liquidity shocks. The rate charged under MSF is a penal rate, typically higher than the prevailing repo rate.
The MSF rate is usually pegged 25 or 50 basis points above the repo rate. For instance, if the repo rate is 6.50%, the MSF rate might be 6.75%. This higher rate discourages banks from using MSF frequently and encourages them to manage their liquidity prudently. The repo rate is the rate at which commercial banks borrow money from the RBI by selling their securities to the central bank under a repurchase agreement.

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